TITLE: B-310454; B-310537, KAR Contracting, LLC, December 19, 2007
BNUMBER: B-310454; B-310537
DATE: December 19, 2007
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B-310454; B-310537, KAR Contracting, LLC, December 19, 2007
Decision
Matter of: KAR Contracting, LLC
File: B-310454; B-310537
Date: December 19, 2007
Kenneth A. Reynolds, KAR Contracting, LLC; and Dwight J. Staples, Esq.,
and Gail Henderson-Staples, Esq., Henderson, Henderson & Staples, for the
protester.
Phillipa L. Anderson, Esq., Kenneth MacKenzie, Esq., and Charlma Quarles,
Esq., Department of Veterans Affairs, for the agency.
Paul N. Wengert, Esq., and Ralph O. White, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protests challenging an agency's decision that the protester is ineligible
for the award of two construction projects are denied where the agency
reasonably concluded that these awards would create the appearance of an
impropriety because of the protester's founder's role in both projects
while a government employee, including serving as the contracting
officer's technical representative, and participating in the preparation
of construction drawings.
DECISION
KAR Contracting, LLC protests the rejection of its bids under two
solicitations to perform construction work at the Department of Veterans
Affairs (VA) Medical Center in Huntington, West Virginia. One bid was
submitted in response to invitation for bids (IFB) No. VA-249-07-IB-0085,
for replacement of the roof on "Building One" at the VA's Huntington
Medical Center; the second was submitted in response to IFB No.
VA-249-07-IB-0107, for work on the Center's water reservoir and pump
house.
These protests involve a single issue--whether the VA's contracting
officer (CO) reasonably rejected two bids submitted by a recently retired
employee of the VA Medical Center. For these bids--as opposed to two other
bids where the protester received awards--the CO concluded that the former
employee's involvement with the same projects during his government
service was too significant to permit award to his newly-formed company
without creating the appearance of an impropriety. For the reasons set
forth below, we agree.
We deny the protests.
BACKGROUND
Both of these solicitations were issued by the VA on August 1, 2007.
Twelve days earlier, on July 20, Mr. Kenneth Reynolds retired from his job
at the VA's Huntington Medical Center, where he had worked for more than
21 years. For the 15 years prior to his retirement, Mr. Reynolds had been
employed as an engineering technician at the Medical Center, where, among
other duties, he was identified as a Project Manager reporting to the
Chief of the Facility and Plant Management Service (hereinafter, the
"Facilities Chief"). Mr. Reynolds explains that he left his VA job "to
pursue owning and operating an SDVOSB (small disabled-veteran-owned
business) contracting company, KAR Contracting, LLC." Protester's
Comments, Nov. 7, 2007, at 2.
Bid opening for the roof replacement project (IFB -0085) took place on
September 5; bid opening for the work on the water reservoir and pump
house (IFB -0107) took place 2 days later, on September 7. On both
projects, KAR was ultimately found to be the low bidder.[1]
The CO explains that KAR submitted with both of its bids a copy of a
letter to Mr. Reynolds from the VA Regional Counsel, dated July 20, which
had been provided upon his retirement. The CO also states that Mr.
Reynolds indicated that the letter "allowed him to bid on the VA [Medical
Center] contracts." CO's Statement, Oct. 25, 2007, at 1.[2] The letter, in
general, provides an explanation of the post-employment restrictions
applicable to former government employees codified at 18 U.S.C.
sect. 207.[3] AR, exh. 5.
In light of concerns about whether the newly-founded company owned by
Mr. Reynolds could appropriately perform these contracts--and given Mr.
Reynolds' representation to the CO that the letter advised that it
could--the CO contacted the Facilities Chief for advice. The Facilities
Chief, who was Mr. Reynolds' supervisor at the time of Reynolds'
retirement, was asked by the CO to certify that "Ken Reynolds would be
eligible for award" of these projects. AR, exhs. 6 and 7. In response, the
Facilities Chief advised the CO that Mr. Reynolds had been involved in
both projects, and therefore he was seeking clarification from the VA's
Office of Regional Counsel. On September 19, in a letter addressed to the
Facilities Chief, a VA attorney provided a 3-page analysis of the
situation with the following conclusion:
Based on the foregoing, pursuant to either Section 207(a) or 207(b), it
is my opinion that Mr. Reynolds is ineligible for any projects that were
assigned to him while he was employed as an Engineering Technician at
the Huntington VAMC.
AR, exh. 8, at 3.[4]
Upon receipt of this letter, the Facilities Chief prepared a statement for
the CO advising that Mr. Reynolds (and KAR Contracting) was ineligible for
award of either of these contracts. AR, exhs. 9 and 10. Two days later, in
a letter to KAR, the CO advised
We are unable to accept your bids on these two solicitations. Acceptance
would violate post-Government employment restrictions as outlined in the
enclosed Office of Regional Counsel . . . letter dated September 19,
2007.
AR, exh. 11, Letter from CO to KAR, at 1.
These protests followed.
DISCUSSION
KAR argues that the CO abused her discretion when she excluded KAR's bids
from consideration because her decision was based on faulty legal
reasoning by the VA's attorney. In addition, KAR argues that agency
officials are biased against him.
The basic requirements and procedures for procurements conducted using
sealed bids are set forth in the Federal Acquisition Regulation (FAR) at
part 14. Within this scheme, subpart 14.404-2 governs the rejection of
individual bids, and FAR sect. 14.402-2(h) requires the rejection of any
bid received from a person or concern that has been suspended, debarred,
proposed for debarment, or declared ineligible for award. The record here
shows that, after consultation with counsel, the Facilities Chief provided
the CO with a determination that KAR was ineligible for these awards.
Once the agency concluded that KAR was ineligible for award, it rejected
KAR's bids. While the analysis set forth below is drawn largely from cases
involving negotiated procurements, the same rules apply to procurements
conducted using sealed bids: an agency can reasonably reject a bid to
avoid even the appearance of an impropriety. See Revet Env't & Analytical
Labs., Inc., B-221002.2, B-221003.2, July 24, 1986, 86-2 CPD para. 102 at
4.
An agency's decision to exclude an offeror[5] from a competition in order
to remedy a problem related to the integrity of a particular procurement
requires a balancing of competing interests set forth in the FAR. On the
one hand, contracting officers are granted wide latitude in their business
judgments to safeguard the interests of the United States in its
contractual relationships. FAR sect. 1.602-2; IGIT, Inc., B-271823, Aug.
1, 1996, 96-2 CPD para. 51 at 3; Compliance Corp.--Recon., B-239252.3,
Nov. 28, 1990, 90-2 CPD para. 435 at 4. On the other hand, the same
section of the FAR requires contracting officers to ensure impartial,
fair, and equitable treatment of all contractors. FAR sect. 1.602-2(b);
KMPG Peat Marwick, B-251902.3, Nov. 8, 1993, 93-2 CPD para. 272 at 8,
aff'd, Agency for Int'l Dev.; Dev. Alternatives, Inc.--Recon., B-251902.4,
B-251902.5, Mar. 17, 1994, 94-1 CPD para. 201 at 7.
It has long been the case that where there is an apparent conflict of
interest, an agency may exclude an offeror from a procurement to protect
the integrity of the federal procurement system, even if no actual
impropriety can be shown, provided that the agency's determination is
based on fact and not mere innuendo and suspicion. See, e.g., Lucent
Techs. World Servs. Inc., B-295462, Mar. 2, 2005, 2005 CPD para. 55 at 10;
Electronic Design, Inc., B-279662.5, May 25, 1999, 99-1 CPD para. 103
at 6; IGIT, Inc., supra; KPMG Peat Marwick, supra; Compliance
Corp.--Recon., supra; MDT Corp., B-236903, Jan. 22, 1990, 90-1 CPD
para. 81 at 3. Holmes & Narver Servs., Inc./Morrison-Knudson Servs., Inc.,
a joint venture; Pan Am World Servs., Inc., B-235906, B-235906.2, Oct. 26,
1989, 89-2 CPD para. 379 at 8, aff'd, Brown Assocs. Mgmt. Servs.,
Inc.--Recon., B-235906.3, Mar. 16, 1990, 90-1 CPD para. 299 at 3; Laser
Power Techs., Inc., B-233369, B-233369.2, Mar. 13, 1989, 89-1 CPD
para. 267 at 7.
In those cases where an agency has decided to exclude an offeror (or
bidder) from a competition, we will review the record to determine whether
the agency had a reasonable basis for its decision in the face of an
allegation, or indication, of an apparent conflict of interest or
appearance of impropriety. See Lucent Techs. World Servs., Inc., supra;
IGIT, supra; KPMG Peat Marwick, supra; Naddaf Int'l Trading Co.,
B-238768.2, B-238768.3, Oct. 19, 1990, 90-2 CPD para. 316 at 5; Holmes &
Narver, Inc., B-239469, Sept. 14, 1990, 90-2 CPD para. 210 at 10 (all
involving an agency decision to exclude an offeror); see also Friends of
the Waterfront, Inc., B-225378, Jan. 6, 1987, 87-1 CPD para. 16 at 2;
Revet Env't & Analytical Labs., Inc., supra (involving an agency decision
to exclude a bidder).
During this protest, KAR has raised detailed challenges to the legal
memorandum provided by the VA attorney, including assertions that certain
portions of the analysis are flawed, and do not accurately interpret the
regulations implementing this criminal statute. We need not take a
position on KAR's challenges to the VA's analysis of a criminal statute to
reach our conclusion here; 18 U.S.C. sect. 207 is a criminal statute whose
interpretation and enforcement is a matter for the Department of Justice,
not our Office. Science Pump Corp., B-255737, Mar. 25, 1994, 94-1 CPD
para. 246 at 5 n.3.
In our view, the restrictions of 18 U.S.C. sect. 207 do not set the outer
boundaries for a CO's reasonable exercise of discretion about whether the
award of a contract will create the appearance of impropriety.
Specifically, even if KAR can argue that the facts here would not support
a criminal conviction for violation of the post-employment restrictions,
that would not mean there was no reasonable basis for concluding that KAR
was ineligible for award.
Our review of the record shows a CO, and other officials, questioning
whether it was appropriate to award construction work for the Medical
Center to a recently retired employee who had been listed as the CO's
technical representative (COTR) on the very projects on which he was
bidding. The record supports this concern: Mr. Reynolds was assigned as
the COTR on both of these projects. As recently as June 7--just 3 months
before he would be the low bidder for the water reservoir and pump house
project--the project tracking log includes Mr. Reynolds' initials ("KR")
on the log's indication that the project design had reached the 50 percent
completion point. On the roof replacement project, where he was also the
COTR, the project design had reached the 75 percent completion milestone.
In addition to the listing as COTR, the VA officials noted that
engineering technicians prepare drawings for various construction projects
to be performed at the Medical Center. The concern about the appearance of
a conflict created by this situation led the CO to inquire of the
Facilities Chief whether award to KAR was appropriate. When the Facilities
Chief was unsure, he sought advice from an agency attorney. While we
recognize that the concern here was ultimately described as a concern that
award to KAR would violate the post-employment restrictions applicable to
former government employees, we think there is ample support in this
record to conclude that the CO's actions here reflected concern about the
appearance of an impropriety created by the award of these contracts to a
recently retired employee's newly-formed company. Where we find support
for such conclusions in the record, we are less concerned about whether
the CO selected the correct legal label to describe those concerns than we
are about whether the exercise of discretion was supported by the
facts.[6] See Lucent Techs. World Servs. Inc., supra, at 4-9; cf. Battelle
Mem. Inst., B-278673, Feb. 27, 1998, 98-1 CPD para. 107 at 6-8
(recognizing that the FAR's organizational conflict of interest
regulations, by their terms, do not apply to government officials, but
looking to those regulations as instructive about the situations COs
should take steps to avoid, neutralize, or mitigate).
During this protest, KAR has argued that Mr. Reynolds did not prepare many
of the drawings here (in some instances, KAR explains that Mr. Reynolds
only copied drawings prepared years earlier), and KAR has submitted a
statement from another engineer buttressing his assertions. As stated
above, we think the record here supports the agency's conclusion that
government employees involved in projects this close to design completion,
and designated as technical participants in the upcoming procurement, can
reasonably be excluded from competitions when they leave government
service and, soon thereafter, attempt to win contracts for the same
projects they worked on while in the government.[7]
KAR pointed out during this protest that it had received two other awards
from the VA's Huntington Medical Center since Mr. Reynolds' retirement. We
asked the agency to explain its rationale for these other awards, given
the position taken here.
In response, the Facilities Chief submitted a sworn declaration explaining
that the differing conclusions were due to a different level of
involvement by Mr. Reynolds, as reflected in documents the agency calls
"blue sheets." These so-called "blue sheets" listed the status of all
approved construction projects for the Huntington VA Medical Center. In
the two projects under challenge here, the agency explains that Mr.
Reynolds was identified as the COTR, and the project design had reached,
or passed, the 50 percent design completion point. While Mr. Reynolds was
also listed as the COTR for one of the projects where he was allowed to
receive an award--involving site preparation for R/F equipment--the design
of the project was still listed as 0 percent completed because equipment
plan drawings had not yet been received from the equipment vendor.
Declaration of VA Medical Center Facilities Chief, Nov. 30, 2007, at 1-2.
In our view, while Mr. Reynolds argues that the "blue sheets" are
sometimes inaccurate, we think the agency could reasonably rely on these
contemporaneously prepared worksheets to inform its decisions about which
projects might be appropriate for award to KAR, and which projects might
more appropriately be withheld.
As a final matter, we turn to KAR's complaint that certain of the
officials at the Huntington Medical Center are biased against him. We note
that not only has KAR provided no evidence to support these claims, but
the evidence provided by the agency supports a conclusion that these
allegations are not credible. As stated above, where KAR was the low
bidder on a project that had not proceeded very far towards completion of
the design work, he received award. Where, as here, a decision to exclude
a contractor is limited to a specific situation, and there is no
indication that KAR will be ineligible for the award of contracts in the
future, we are less concerned about allegations of ongoing bias. See,
e.g., Naddaf Int'l Trading Co., B-238768, B-238768.2, Oct. 19, 1990, 90-2
CPD para. 316 at 6.
In short, the record here reflects that KAR's founder had a role in the
development of the requirements for these projects, and that he held this
role until shortly before issuance of the solicitations. When KAR then
submitted the lowest responsive bids as of the bid openings on September 5
and 7, the CO decided that KAR would not be eligible for these awards. On
these facts--and in particular, the very brief time between the
involvement of KAR's founder and bid opening--we conclude that the CO
reasonably excluded KAR's bids for these projects.
The protests are denied.
Gary L. Kepplinger
General Counsel
------------------------
[1] For the roof replacement project five bids were received. The apparent
low bid was rejected for reasons not relevant to this dispute (bid bond
issues), and the bid submitted by KAR became the lowest responsive bid.
For the water reservoir project, KAR submitted the only bid. Agency Report
(AR), exhs. 3 & 4.
[2] The CO's Statement, while signed, is undated, but was provided to our
Office on October 25.
[3] In broad terms, 18 U.S.C. sect. 207(a)(1) imposes criminal penalties
on former government employees for representing "any other person" before
a federal agency in connection with a "particular matter . . . in which
the [former employee] participated personally and substantially . . . and
[] which involved a specific party or specific parties at the time of such
participation." In contrast, sect. 207(a)(2) imposes a 2-year bar under
parallel facts for matters under a former employee's "official
responsibility," during the final year of federal service (i.e., even
where the employee was not personally and substantially involved).
[4] Since the letter does not elsewhere mention or explain the application
of sect. 207(b), we infer that the intended references were to
sections 207(a)(1) and 207(a)(2), which were the subject of the analysis
of the letter.
[5] As stated above, since most recent decisions interpreting conflict of
interest requirements have involved negotiated procurements, rather than
procurements using sealed bids, we will describe those cases using the
term offeror, rather than bidder.
[6] Specifically, we reach our conclusion that the decision to exclude KAR
was reasonable even accepting KAR's allegations that there were flaws in
the legal analysis of the post employment restriction statute performed by
the agency attorney.
[7] With respect to his role as the COTR, KAR does not dispute that Mr.
Reynolds had been listed as the COTR on these projects, but contends that
he did not have official responsibility for them (because others did) and
because the projects did not become "particular matters" under the rubric
of 18 U.S.C. sect. 207 until release of the solicitations on August 1--12
days after his retirement. As stated above, we will not parse the
application of this criminal statute to this situation. We think the CO
could reasonably conclude that Mr. Reynolds's involvement in preparing the
design documents for these projects--even if he was supervised by others
with more authority for the projects than him, and even if others did more
of the design work than he did--created the appearance of an impropriety.
We also recognize that at some point prior to the release of a
solicitation, an agency must identify the people who will have technical
responsibilities in the upcoming procurement.